Wider U.S. Sanctions on Venezuela Risk Biting Both Countries

HOUSTON — The United States and Venezuela are on a collision course as President Trump promises to inflict economic pain if President Nicolás Maduro goes through with an election intended to enhance his powers.

Mr. Maduro has pledged not to back down from the vote on Sunday, so the only question is whether the collision will be a fender-bender or a thundering crash.

The Trump administration’s move on Wednesday to impose sanctions on 13 senior Venezuelan officials and others close to the Maduro regime was relatively modest. But American officials stressed that it was merely a precursor to escalating actions should the vote go forward.

The two countries’ economies are tightly intertwined through the oil that Venezuela sells to the United States: It accounts for roughly 10 percent of the oil America imports. And Washington has powerful tools at its disposal, including a complete prohibition on Venezuelan oil.

Whatever Mr. Trump decides to do next is likely to echo, from the Venezuelan Treasury to the American gasoline pump.

Despite nearly two decades of sour relations with Venezuela, the United States has enormous leverage as one of its most important customers and as one the few countries with refineries capable of processing poor-quality heavy crude.

The Maduro regime is already tottering, struggling to meet its financial obligations, feed its people and pay its oil workers, soldiers and police officers. Additional American sanctions could be a devastating economic blow, prompting the country to move further toward dictatorship and toward an even closer embrace of China and Russia.

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Citgo, which owns pipelines and gasoline stations in the United States, could be crippled by future sanctions against Venezuela.CreditM. Scott Brauer for The New York Times

The result could be more violent strife or even a military coup. And shock waves across the hemisphere could create more complications for the Trump administration as it tries to focus on Iran and North Korea.

“It’s complicated,” said David L. Goldwyn, who was a top State Department energy envoy in the Obama administration.

“Tough sanctions could lead to a default on their bonds and a collapse of internal investment and oil production,” he added. “Other impacts could include civil unrest, refugee flows across their borders, and a cutoff of Venezuelan financial support to Cuba and Haiti that could lead to migration flows to the United States.”

There is also the potential for collateral damage to the United States.

Any trade embargo could raise gasoline prices, cost jobs in the oil patch and dampen profits for several major refiners. A decrease in Venezuelan exports could raise global oil prices, bolstering the economies of Russia and Iran just as Washington prepares to ratchet up sanctions on those countries.

In briefings, administration officials would not speculate on what would come next, but they emphasized a menu of options. Mr. Trump, in a statement last week, said “the United States will not stand by as Venezuela crumbles.”

The immediate concern is over Mr. Maduro’s plan to hold an election this weekend for a Constituent Assembly that would circumvent the opposition-controlled Congress and write a new constitution. The new assembly, which is devised to be dominated by groups that support the regime, would presumably consolidate more control in the hands of the president.

The escalating street violence and hunger in Venezuela are threatening to spread. Tens of thousands of Venezuelans have already fled the country, heightening social pressures. The country’s plummeting economy has added pressure on a region struggling with low commodity prices.

For now, the United States is treading cautiously in its approach to Venezuela.

As a first step, the administration this week froze assets of, and instituted a ban on travel visas for, 13 influential Venezuelans including electoral, military and correctional officials. One of them is Simón Zerpa, vice president for finance at Petróleos de Venezuela, known as Pdvsa, which could complicate relations between the state oil company and American players in Venezuela that are already struggling to get paid for services. The move follows similar sanctions imposed by the Trump administration on Venezuela’s vice president, Tareck El Aissami, and eight members of its Supreme Court.

Mr. Maduro has repeatedly said that Mr. Trump’s past sanctions against his government are evidence of American imperialism and that current threats will not be heeded. If Mr. Trump “has dared to say ‘no’ to the Constituent Assembly, we tell him ‘yes, yes, yes’ — the Constituent Assembly will go ahead — Constituent Assembly now more than ever,” Mr. Maduro said recently.

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President Nicolás Maduro of Venezuela has pledged to not back down from an election that could enhance his power.CreditReuters

More consequential would be future sanctions to limit American oil companies and service companies from operating in Venezuela or to limit the ability of the Venezuelan national oil company to engage in banking activities in the United States or trade with American companies. That scenario would effectively end Venezuelan oil exports to the United States and prohibit Pdvsa from importing the American light oil used to dilute its heavy crude for transport through pipelines and processing.

Such moves, at least in the short term, could result in a collapse in production of the oil that Venezuela depends on to get the foreign currency it needs to buy food and to service its debt.

“It will put Pdvsa on its knees and almost certainly lead to default,” said Francisco J. Monaldi, a Venezuelan oil expert at Rice University in Houston.

Depending on the details of future sanctions, Citgo, wholly owned by the Venezuelan state oil company, could also be crippled. Citgo operates roughly 4 percent of American refining capacity as well as a sprawling network of pipelines and gasoline stations in the United States.

Venezuela now sells more than 700,000 barrels of oil a day to the United States, out of a total production of roughly two million barrels a day, or just over 2 percent of world production. Energy experts say Venezuela could eventually replace the American market, by exporting more heavy oil to China and India, though at a discount. And the 100,000 barrels a day of light oil it imports from the United States could be replaced by imports from Nigeria and Algeria.

Venezuela would have to move quickly. It faces big bond payments later this year, and its foreign reserves are dwindling.

“They have shown that they can get along, so I’m not sure suspending the purchasing of 700,000 barrels will crack the government,” said Luis E. Giusti, a former Pdvsa chief executive. “How much more things will deteriorate compared to what is happening now is a big question that doesn’t have a straightforward answer.”

In the United States, a cutoff of Venezuelan oil imports would force Chevron, Valero Energy, Phillips 66 and other refiners to replace the heavy crude with imports from places like Kuwait and Saudi Arabia, producing higher tanker costs. The administration could sell the refiners supplies from the strategic petroleum reserve to help cushion the blow to their profit margins.

“In the short term it’s going to be very disruptive,” said Chet M. Thompson, president of the American Fuel & Petrochemical Manufacturers, a trade group that has been lobbying against sanctions that would disrupt Venezuelan oil imports. “You are going to end up driving fuel prices up.”